The Morning Update

The USD weakens, oil prices firm, equities are mixed, and US yields ease as risk sentiment improves. The USD softens as Trump softens his tone on China tariffs, while the JPY holds steady despite the BoJ rate cut. Adding further pressure on the USD, President Trump questioned Fed Chair Powell's decision-making on interest rates and said he planned to speak to Fed Chair Powell "at the right time." Equity markets are finishing the week at near-record highs after President Trump appears to be softening his approach towards tariffs on China. "Markets appear to be shifting away from universal tariffs, at least for now," Deutsche Bank AG strategists led by Luis Costa wrote in a note. "This lag in the implementation of tariffs also offers China an opportunity to negotiate and implement policy supports." Elsewhere, oil prices strengthen on US crude drawdown and China stimulus, while gold & silver prices test multi-month highs on Trump rate remarks and lack of tariff clarity. Investors will be focused on the US Manufacturing & Services PMI, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectations and Canada's New Housing Price Index to help provide intraday direction to currency markets.

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In other news. Trump says he 'would rather not' impose tariffs on China. Flights are cancelled, schools are shut, and millions are told to stay home as Storm Eowyn batters the UK. Trump's order offers a chance to revive Keystone XL Pipeline. Amazon layoffs prompt Canada to review government deals. A constitutional amendment to allow Trump a third term was introduced in the House. Amazon layoffs prompt Canada to revive government deals. UK Chancellor Reeves will soften UK non-dom tax reforms. Russia says it repelled a massive Ukrainian drone attack on 13 regions, including Moscow. WHO chief to cut costs, reset priorities after the US exit, documents show.

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In currency markets. The Bank of Japan raises rates for the first time in 17 years, while Singapore eases its monetary policy for the first time in 4 years. CNY & Asian currencies, on average, strengthened on positive tariff comments by 0.7%. Trading currencies rebounded, with JPY & CHF up 0.25%, NOK, AUD & NZD firmed by 0.55%, MXN higher by 0.7%, SEK strengthened by 0.85%, and ZAR rallied by 1%

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In commodity markets. Oil & Gold prices firm by 0.4%. Natural Gas prices tumbled by 2.6%. Silver prices rallied by 1.6%. Copper prices firmed by 1.4%. Wheat prices eased by 0.5%, and Soybean prices weakened by 0.9%.

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CAD strengthens in early trading on the back of a softening USD and strengthening commodity prices. Investors remain cautious ahead of Feb 1st following President Trump's comments to the Davos WEF, saying the US does not need Canadian energy, vehicles or lumber, and reiterated his threat to impose tariffs on Canada. Markets will continue to monitor US tariff updates, and the focus will be on the BoC meeting on Jan 29th, where the bank is expected to ease again by 25 bps. Intraday, the US PMI reports will be the primary driver for the loonie today.

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EURCAD tests fresh highs as the US tariff threat keeps selling pressure on the loonie.

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EUR tests fresh multi-week highs on positive PMI data and a softer USD. Euro benefited from the softening USD, retesting towards 1.0500, with the single currency getting a further boost from EU & German PMI data. The EU & German PMI data showed an expansion in the private sector's business activity in January. In his speech to the DAVOS WEF, President Trump said he would do something about the trade deficit with the EU, adding that EU tariffs were making it very difficult for them to bring products to Europe. Intraday, the focus shifts to the US PMI reports to help provide direction to currency markets.

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GBPEUR eases in early trading as domestic growth concerns and expectations of a more dovish BoE keep pressure on the pound.

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GBP retests 1.2450 on upbeat UK PMI data. The pound extends its weekly gains, seeing the pound testing two-week highs against a softening USD and better-than-expected January PMI data. The positive shift in risk sentiment after President Trump said he would rather not have to use tariffs on China. Domestically, the UK Manufacturing, Composite and Services PMI data all beat expectations, but on a cautious note, the Manufacturing PMI remains below 50, in bearish territory. The focus will shift to the US PMI reports to help drive direction for the pound.